Does pricey Vancouver have a U.S.-like housing bubble?

By Bill Mann

Vancouver now has the least affordable housing in the world, says a recent report in the Vancouver Sun.

Sun business columnist Don Cayo says snarkily: ‘We did it: We are the least affordable city in North America.”

A Reuters piece by Michael Goldberg added this in the same tone: “Congratulations are in order. Vancouver is now the least affordable city among 272 in Australia, Canada, Ireland, New Zealand, the U.K. and the U.S., according to the 2010 Sixth Annual Demographia International Housing Affordability Survey.”

Cayo also wrote disparagingly of the beautiful British Columbia city’s “criminal” real-estate prices that “gangsters get a bum rap when they’re blamed for high housing costs in Metro Vancouver.”

A number of different factors, including waves of overseas speculators and money laundering, have been blamed for the high prices. Although the housing market in Vancouver has cooled a bit, the average price of a home there is $640,000 CDN. That may not sound like much to some Americans living in or near, say, San Francisco, but it’s virtually unheard of in Canada.

Goldberg’s piece, carried in the Sun’s Business section, says of the high prices:

“This ‘achievement’ was made possible by a potent mix of dysfunctional local policies, processes, public attitudes and a wanton disregard for the economic realities of present and future residents and of the future ability of the region to attract and retain jobs.

“Supply is severely restricted by low densities over most of Vancouver compared with other cities our size. Height, setback and view corridor rules further limit supply. Add to this lengthy and costly approval processes and the result is a significant continuing restriction in supply, which, faced with growing demand, means rising prices.

“An unintended but predictable result of limiting supply with rising demand,” added Goldberg, ” is gentrification, killing what little affordable housing is left as people seek out new and affordable neighbourhoods, in the process making them unaffordable to current residents and later to others.

Whatever the reasons for the high prices — especially in such desirable areas as West Vancouver – there are a lot of unhappy would-be property owners in Vancouver, judging by the constant stream of dyspeptic callers I hear on Vancouver radio talk shows.

There’s been no shortage of doom-and-gloom predictions on the Vancouver housing “bubble” supposedly about to burst.

But the CD Howe Institute, in a new report released Wednesday and appearing in many Canadian daily papers, says that’s unlikely.

The report comes a day after a Canadian Centre for Policy Alternatives’ report saying six Canadian cities – Vancouver, Calgary, Edmonton, Ottawa, Toronto and Montreal – were due for a correction because prices have increased beyond what’s justified by the broader economy.

But the Howe report notes “recent swings in Canadian house prices have raised concerns that a U.S.-style housing bust looms on the horizon,” according to Jim MacGee, an associate professor of economics at the University of Western Ontario.

“A comparison of housing market policies in Canada versus the U.S., however,” MacGee adds, “suggests that there is little likelihood of a U.S.-style surge in foreclosures or a collapse of house prices in Canada.”

MacGee, quoted in the TorontoGlobe and Mail, blames “a decline in underwriting standards” as key to the dramatic bust in the U.S., which saw housing prices plummet up to 50 per cent in some markets.